IMPORTANT POINT
The court upheld the bank's right to adjust funds under general lien principles while emphasizing the need for clarity on loan agreements.

JUDGMENT :

Munnuri Laxman, J.

1. The present special appeal arises out of order dated 10.07.2024 passed by the learned Single of this Court in S.B.Civil Writ Petition No.12144/2023, whereby the prayer for refund of the balance amount of Rs.3.23 lacs left after adjusting the loan amount from the price fetched in the auction of the writ-petitioner’s property was allowed and such amount was ordered to be returned to the writ-petitioner with interest @ 9% per annum within three weeks and if not paid within stipulated period, the petitioner is entitled for enhanced interest @ 18% per annum.

2. The present appeal has been filed by Canara Bank, who is the first respondent in the writ petition.

3. The case of the writ-petitioner is that he was the guarantor for the loan agreement of the second respondent-Firm for credit facilities availed with the first respondent-Canara Bank. Subsequently, the credit facility account of the second respondent was classified as a Non-Performing Assets (NPA). The outstanding amount standing to the credit of the second respondent’s credit facility account was unpaid. The first respondent-Bank proceeded for recovery of unpaid amount by invoking the provisions of SARFAESI Act by auctioning the property of the writ-petitioner, who was the guarantor for the said loan. The amount of outstanding loan was Rs.19,53,608/-. The value fetched in the auction was Rs.23,00,000/-. After adjusting the outstanding loan amount, the balance of Rs.3,23,000/-, which ought to have been returned to the writ-petitioner was not refunded or paid. In such circumstances, the writ petition was filed seeking direction to the Bank to refund the balance amount of Rs.3,23,000/- with interest.

4. The initial stand of the respondent before the Writ Court is that the Bank did not dispute the fact that Rs.3,23,000/- were balance amount after adjusting the loan amount of the second respondent and such balance amount was adjusted towards outstanding amount of the second respondent towards additional Guaranteed Emergency Credit Line (GECL). Upon the direction of the learned Single Judge, the respondent-Bank come up with knew plea that the writ-petitioner was a guarantor for another loan account of one Bhagirath Nirmal and the said account was also classified as NPA. The balance amount which was available after adjusting the loan amount of the second respondent, was credited to the writ-petitioner's account and the same was adjusted towards the part of loan of Bhagirath Nirmal, to which the writ-petitioner was also guarantor.

5. The learned Single Judge after seeing the two different stands of the bank, did not agree with the existence of the second loan of Bhagirath Nirmal and consequently, directed the respondent-Bank to pay the amount with interest. Aggrieved by the same, the present Special Appeal has been filed.

6. Heard learned counsel for both the sides and perused the impugned order as well as material available on record.

7. The learned counsel appearing for the respondent No.1-Bank has contended that the learned Single Judge failed to consider the existence of the second loan of Bhagirath Nirmal, which was also declared NPA and the writ petitioner was guarantor for the said loan transaction also. The balance amount remained after adjusting with the second respondent’s loan agreement, was adjusted towards the loan account of Bhagirath Nirmal to which the writ-petitioner was also guarantor. He also contended that such adjustment was done by the Bank exercising the right of general lien on all securities and all forms of commercial papers deposited by or on behalf of the customers in ordinary course of banking business.

8. The learned counsel for the Bank also contented that though the property was given on security for the loan amount of the second respondent, such a security can also be made use for the purpose of adjustment of another loan by exercising its power of general lien over such property unless contract is otherwise. According to lea